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Saturday, December 19, 2009

In 2007, after working for small screen-printing companies for nearly a decade, April Wade, 32, and her boyfriend Justin Sellers, 27, decided to strike out on their own. Anchor Screen Printing, in Fort Walton, Fla., made custom T-shirts with designs created by local churches, schools, businesses and walk-in customers. Two months after opening, revenue was but a trickle and the twosome--staked with a $25,000 loan from a friend--couldn't cover rent on their 2,000-square-foot store, which included a printing facility.

Then one of Wade's friends told her about Etsy, an online brokerage that connects artisans with buyers. Wade and Sellers printed custom-designed T-shirts (some drawn by outside artists) and posted them on Etsy's site. Good move. "We couldn't have kept the business going without it," says Wade. "It kept us afloat while we were building up our business."

Over the past two years, Deadworry, the couple's subsite on Etsy, has moved 5,000 T-shirts, cotton dresses and bags, generating $150,000 in sales. Etsy's take: 3.5% sales commission ($6,000), plus a 20-cent listing fee for each item. Better yet: no advertising expenses. Etsy's large audience--now 3 million to 4 million unique visitors a month, according to the company--handles that. "So many people are looking at it and they just see you," says Wade. Etsy still accounts for about half of Anchor's annual revenue.

The Anchor duo is part of a new wave of online entrepreneurs--those looking to supplement their income, as well as the 10.4% of the U.S. workforce scrambling to stay afloat while they hunt for a new job.

Established virtual marketplaces, such as and Craigslist, laid the groundwork in the '90s. Now there's a new crop of vibrant sites catering to niche groups of buyers and sellers. Just two examples: Infochimps facilitates the sale of data sets (such as numbers on current cigarette smoking by sex and state), while Sittercity matches parents with babysitters.

Plenty of e-commerce sites flamed out in the dot-com bust of 2001. "The knock on new companies like these was always there's not enough liquidity to create a viable market in something so small," says Paul Kedrosky, a senior fellow at the Kauffman Foundation, a Kansas City, Mo., nonprofit that studies entrepreneurship. "Now you can find big marketplaces in small obscure areas, mostly because of how gigantic the online population has become. There's more liquidity in small marketplaces now than large ones like eBay 15 years ago."

Online commerce has remained relatively healthy, even through the recession. According to the Department Of Commerce, e-commerce sales in the third quarter ended in September hit $34 billion, up 1.8% from the same period last year. Meanwhile, total retail sales decreased 7.5%, to $920 billion during the same stretch.

While still small, Etsy is becoming a bustling bazaar. During the month of October, artisans sold 1 million items, generating about $17.7 million in revenue, 11% more than in September. "It's hard for a generalized marketplace like eBay to get into these niche areas, because they can't pull a community together," says Steve Barsh, partner at DreamIt Ventures, a Philadelphia early-stage venture firm.

DreamIt, in May, plunked down $25,000 for a 6% stake of Notehall.com, a marketplace where students at 14 universities, including the University of Arizona, Purdue and Drexel, can sell notes and study guides for classes. Price: 25 cents per upload for notes; $1 for study guides. Notehall's take: a steep 50% commission on every stale. Founder Sean Conway says Notehall attracts 65,000 unique viewers and handles about 10,000 transactions every month. Conway aims to expand to 50 universities by May 2010. (For a list of six new online marketplaces, see our slide show.

Bill Tai, a partner at Charles River Ventures, smells a renaissance for e-commerce. "Every other segment in the Internet has been remade except for e-commerce," says Tai, who in 2007 invested $6 million in Glyde.com, a marketplace for used CDs, books and video games. "During recessionary periods, people get creative about getting cash and monetizing what they can."

Indeed, the U.S. unemployment rate fails to capture what Kauffman Foundation's Kedrosky calls "atomized" forms of employment. "I'm not going to say we're not seeing horrifically high levels of unemployment," he adds, "but our measures are wrong, and people have more opportunities than ever before to make money off the grid."